Breakout Signals

Ascending Triangle, Bullish Rectangle, Double Bottom, and Falling Wedge, with Microsoft, Lululemon, and Home Depot Exhibits

The most important signals for investors, portfolio managers, and traders are the breakout signals. The stock market is all about change and recognizing change as early as possible so as to make money. Professionals have no interest in obvious trends that are showing no signs of change. It is “management by exception” for the portfolio manager and the exceptions are the stocks that have started to change. In this chapter, we discuss a former growth stock, Microsoft (MSFT), which is giving some signs of changing with a recent breakout. We will look at other stocks to demonstrate the breakout signals that are invaluable to everyone in the stock market. The case study stock will be the ascending triangle breakout of Home Depot (HD).


The Microsoft weekly chart (Exhibit 6.1) illustrates the following sequence of events:

EXHIBIT 6.1 MSFT, April 13, 2012, Weekly


  • A double top at $30 followed by a drop of about 30 percent in price.
  • A double bottom at $22.
  • A bullish rectangle and positive breakout above $27 to $32, for an 18 percent gain.
  • A breakout above double-top resistance at $30.

Exhibit 6.1 aptly illustrates why the double top and double bottom are widely respected ...

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